The CME Group Risk Management Handbook

Praise for The CME Group Risk Management Handbook "e;Wow! The CME Group Risk Management Handbook is a 'ten strike' and long overdue. A must-read and reference for the risk management industry!"e; Jack Sandner, retired chairman of CME Group, member of the Executive Committee "e;This is a powerful book for its integration of futures and options markets with an understanding of the whole economy. It is an eye-opener to see how central these markets are to our economic lives."e; Robert J. Shiller, Okun Professor of Economics, Yale University; Chief Economist, MacroMarkets LLC "e;Risk management is essential to successful investing, and The CME Group Risk Management Handbook provides the essentials for understanding risk management. In the wake of the financial turmoil of the last few years, managing risk should be part of any investment program. Among the key elements of risk management are stock index, bond, currency, and commodity futures as well as a growing number of futures, options, swaps, and other financial instruments built on indices tracking housing prices, weather conditions, and the economy. The CME Group Risk Management Handbook offers a comprehensive guide for using all of these to better manage financial risks."e; David M. Blitzer, PhD, Managing Director and Chairman of the Index Committee, S&P Indices "e;Dare we ignore the advice of a financial institution, the largest of its kind in the world, that navigated the recent financial crisis without the aid of a single TARP dollar or access to the Fed's cheap loans? For CME Group, risk management has meant risk minimization as it enters its 151st year of life and its 85th year of central counterparty clearing without a single trading debt unpaid. It has been, and continues to be, a leader by example."e; Philip McBride Johnson, former CFTC chairman "e;For the first time, a comprehensive handbook outlining the futures market in today's world is available. The CME Group Risk Management Handbook covers futures basics for the novice trader, while the veterans will benefit from an in-depth look at options and hedging. This handbook is a necessity for any professional, investor, or other market participant seeking to manage risk in the perpetually changing futures market."e; H. Jack Bouroudjian, CEO, Index Futures Group

Praise for The CME Group Risk Management Handbook"Wow! The CME Group Risk Management Handbook is a 'tenstrike' and long overdue. A must-read and reference for the riskmanagement industry!"Jack Sandner, retired chairman of CME Group, memberof the Executive Committee"This is a powerful book for its integration of futures andoptions markets with an understanding of the whole economy. It isan eye-opener to see how central these markets are to our economiclives."Robert J. Shiller, Okun Professor of Economics, YaleUniversity; Chief Economist, MacroMarkets LLC"Risk management is essential to successful investing, andThe CME Group Risk Management Handbook provides theessentials for understanding risk management. In the wake of thefinancial turmoil of the last few years, managing risk should bepart of any investment program. Among the key elements of riskmanagement are stock index, bond, currency, and commodity futuresas well as a growing number of futures, options, swaps, and otherfinancial instruments built on indices tracking housing pricesweather conditions, and the economy. The CME Group RiskManagement Handbook offers a comprehensive guide for using allof these to better manage financial risks."David M. Blitzer, PhD, Managing Director andChairman of the Index Committee, S&P Indices"Dare we ignore the advice of a financial institution, thelargest of its kind in the world, that navigated the recentfinancial crisis without the aid of a single TARP dollar or accessto the Fed's cheap loans? For CME Group, risk management has meantrisk minimization as it enters its 151st year of life and its 85thyear of central counterparty clearing without a single trading debtunpaid. It has been, and continues to be, a leader byexample."Philip McBride Johnson, former CFTC chairman"For the first time, a comprehensive handbook outlining thefutures market in today's world is available. The CME Group RiskManagement Handbook covers futures basics for the novicetrader, while the veterans will benefit from an in-depth look atoptions and hedging. This handbook is a necessity for anyprofessional, investor, or other market participant seeking tomanage risk in the perpetually changing futures market."H. Jack Bouroudjian, CEO, Index Futures Group

Foreword by Leo Melamed.Prologue by Terry Duffy.Acknowledgments.Introduction by Craig S. Donohue.Chapter 1 Futures Market Fundamentals.What Is a Futures Contract?Overview of Popular Financial Futures Contracts.Anatomy of a Futures Transaction.Conclusion.Notes.Chapter 2 Order Entry and Execution Methodologies.Open Outcry or Pit Trading.Introduction of the CME Globex Platform.Trade Matching Algorithms.About Options Markets.Ex-Pit Trading.Conclusion.Notes.Chapter 3 Role of the Clearinghouse.Financial Safeguards.Financial Surveillance.Default by a Clearing Member.Resources Backing CME Group Clearing System.Customer Protection.Disaster Recovery and Business Continuity.Rule Enforcement.Financial and Regulatory Information Sharing.Conclusion.Chapter 4 Currency Futures: The First Financial Futures.Evolution of Foreign Exchange Marketplace.Over-the-Counter Currency Trading Vehicles.Exchange-Traded Currency Futures and Options.Foreign Exchange Market Growth and Trends.Conclusion.Notes.Chapter 5 Stock Index Futures: The First Financial Futures.Mechanics of Stock Index Futures.E-Minis versus Exchange-Traded-Funds.Pricing Stock Index Futures.Spreading Stock Index Futures.Hedging with Stock Index Futures.Portable Alpha Strategies.Conclusion.Notes.Chapter 6 Eurodollar Futures: Interest Rate Market Building Blocks.Eurodollar Futures Market.Speculating on Shape of Yield Curve.Term Treasury/Eurodollar (TED) Spreads with Futures and Options.Interest Rate Swap Market.Growing Up Together.Pricing Relationship.Hedging Techniques.Conclusion.Technical Appendix: Complications and Shortcuts for Pricing and Hedging Swaps.Notes.Chapter 7 Understanding U.S. Treasury Futures.Coupon-Bearing Treasury Securities.Treasury Futures Delivery Practices.Measuring Risk of Coupon-Bearing Securities.Risk Management with Treasury Futures.Macro Hedging with Treasury Futures.Trading the Yield Curve with Treasury Futures.Conclusion.Notes.Chapter 8 Commodities: Backbone of the Futures Industry.What Are Commodities?Grain Markets.Livestock Markets.Energy Products.Precious Metals.The Forward Curve.Intermarket Commodity Spreading.ClearPort Over-the-Counter Clearing Facility.Conclusion.Appendix: Major Commodity Market Specifications.Chapter 9 Alternative Investment Market fundamentals.Weather.Residential Housing Futures.Economic Indicators.Conclusion.Notes.Chapter 10 Fundamental Market Indicators.Why These Indicators?Trading Volumes.Volatility: Daily Net Change.Volitility: Daily High-Low Range.Conclusions.Appendix: Economic Indicator Descriptions.Notes.Chapter 11 Technical Analysis Primer.Why Technical Analysis?Interpreting Charts.Elliot Wave Theory.Intraday Trading Techniques.Trend-Following Systems.Conclusion.Chapter 12 Fundamentals of Option Markets.What is an Option?Mathematical Option Pricing Models.Historic and Implied Volatilities.Measuring Option Performance.Conclusion.Chapter 13 Option Trading Strategies.Option Spreads.Horizontal Spreads.Diagonal Spreads.Comparing Verticals, Horizontals, and Diagonals.Weighted Spreads.Volatility-Driven Strategies.Specialty Option Strategies.Matching Strategy and Forecast.Conclusion.Chapter 14 Hedging with Options.Baseline Futures Hedge.Buying Protection with Puts.Yield Enhancement with Calls.In- and Out-of-the-Money Options.Matching Strategy with Forecast.Collar Strategy.Delta-Neutral Hedge.Conclusion.About the Authors and Contributors.Index.